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McDonald’s executives acknowledged Monday that diners consider the company’s prices too high as lower-income consumers balk after years of high inflation.
During the company’s second-quarter earnings call Monday, executives said that they are taking a “forensic approach” to evaluating prices and trying to create value. The company posted worse-than expected second-quarter earnings, as same-store sales declined across every division.
“We recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors but it’s clear that our value leadership gap has recently shrunk. We are working to fix that with pace,” McDonald’s CEO Chris Kempczinski said on the company’s earnings call.
Kempczinski said price increases have made consumers reconsider buying habits.
As consumers pull back spending amid increasing prices, fast food chains have had a difficult time drawing in lower-income diners. More than 60% of respondents to a recent LendingTree survey said they have cut back their fast-food spending because it is too expensive.
McDonald’s executives on the earnings call said lower-income diners have not been moving from the chain to other fast-food restaurants, but instead have been eating out less frequently across most of the company’s markets globally. The company saw consumers pull back in not just the U.S. but globally, particularly families in European markets.
“At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” McDonald’s U.S. President Joe Erlinger said. “So we believe it is critical for us to consider these factors in order to grow market share, and return to sustainable guest count-led growth for the brand.”
McDonald’s last week decided to extend its $5 value meal offering past its initial four-week window, saying it brought customers back to its restaurants. Ninety-three percent of company franchisees committed to extending the offer further into the summer.
June 25, the launch day of McDonald’s $5 meal, drew 8% more visits than the average Tuesday in 2024 so far and the pattern repeated in the following days as the chain exceeded year-to-date daily visit averages, according to a report from Placer.ai.
Erlinger said the number of $5 meal deals sold topped expectations. The rates were highest among lower-income consumers, and the deal improved brand perceptions around value affordability. The offer also began to increase guest count growth, but it hasn’t yet translated into sales increases, company executives said on the call.
The $5 value meal was rolled out only days before the second quarter ended.
“For 70 years we’ve led on value because it’s what the brand stands for and frankly … we have an underlying competitive advantage that we can buy at a lower price than anybody else in our industry,” Kempczinski said. “The point is, we know how to do this. We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments.”
— CNBC’s Amelia Lucas and Kate Rogers contributed reporting